1975, January, Pg. 31. The FTC's Door-to-Door Sales Rule.

• Author: by Gale T. Miller

4 Colo.Law. 31

Colorado Lawyer

1975.

1975, January, Pg. 31.

The FTC's Door-to-Door Sales Rule

31Vol. 4, No. 1, Pg. 31The FTC's Door-to-Door Sales Ruleby Gale T. MillerOn June 7, 1974, the Federal Trade Commission's trade regulation rule relating to a cooling-off period for door-to-door sales(fn1) (the "door-to-door sales rule" or "the rule") became effective. The rule exerts a substantial and direct impact on door-to-door sellers, but it also exemplifies the FTC's power to intervene in areas traditionally of local concern which may already be regulated by state law and to act, in effect, as a third legislature---in addition to the Congress and the Colorado General Assembly---with authority to issue comprehensive consumer protection rules. The door-to-door sales rule is one of the first FTC trade regulation rules to become effective since the United States Supreme Court refused earlier this year to review the confirmation by the United States Court of Appeals for the District of Columbia Circuit of the FTC's authority to issue binding substantive rules of this nature in National Petroleum Refiners Association v. FTC.(fn2) The FTC's rule-making authority stems ultimately from its statutory mandate "to prevent persons... from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce."(fn3)

The rule gives consumers the right to cancel purchases made at locations other than the seller's place of business within three business days of the date the purchase is made (16 C.F.R. § 429.1(b)).(fn4) Thus, the rule gives consumers an opportunity to change their minds with respect to purchases made, for example, in their homes or at sales parties. Sellers not only must honor the purchaser's change of heart but also must provide purchasers with oral and written notices of their rights under the rule. The rule further requires that the customer be given a completed receipt or copy of the contract. Failure to comply with the rule constitutes an unfair or deceptive act or practice for purposes of § 5 of the Federal Trade Commission Act, and thus may result in the seller's involvement in administrative enforcement proceedings.(fn5)

If the concept behind the FTC rule sounds familiar, it is because Colorado, like most states, has already adopted comprehensive statutory provisions granting comparable, although far from identical, rights to consumers. These provisions are found in §§ 2-501 through -505 of the Colorado Uniform Consumer Credit Code (UCCC).(fn6)

32Unfortunately, as discussed below, the FTC rule neither fully preempts nor subordinates itself to the Colorado statute and hence most retailers engaging in door-to-door sales in Colorado are subject to both regulatory schemes. This article discusses the operation of the FTC rule, its relationship to the Colorado UCCC provisions, and the dilemma of attempting to comply with both. The article also briefly explores the broader impact of the FTC's rule-making power on Colorado trade law.OPERATION OF THE FTC RULE

ScopeThe FTC rule and the accompanying right to cancel apply to any sale, lease, or rental of consumer goods or services involving a purchase price of at least $25--- including all interest and service charges---in which the seller or his salesman personally solicits the sale and the buyer's agreement or offer to purchase is made at a place other than the seller's place of business (§ 429.1, note 1(a)). "Consumer goods or services" are defined as those purchased, leased, or rented primarily for a personal, family, or household purpose. Business and agricultural transactions are therefore impliedly excluded (§ 429.1, note 1(b)). A personal solicitation includes a solicitation made in response to or even following an invitation by the buyer (§ 429.1, note 1(a)). For example, if a consumer telephones a department store or interior decorator and requests that a salesman or decorator come to the consumer's home and take measurements for draperies and carpeting, any sale resulting from that contact consummated at the consumer's home---e.g., by his signing an invoice or sales contract---would be covered by the rule. On the other hand, there is a "prior negotiations" exemption which would exclude the above sale if, for example, the buyer first visited the seller's store and, after discussing various fabrics and carpeting, asked that a salesman be sent to the home to measure or show samples (§ 429.1, note 1(a)(1)). It should be stressed that the prior negotiations must be conducted at the seller's store and that negotiations by telephone are insufficient for purposes of this exemption.

Another significant exclusion involves transactions conducted and consummated entirely by mail or telephone without any other contact between the buyer or seller before delivery of the goods or performance of the services (§ 429.1, note 1(a) (4)). Thus, a mail order catalog transaction would appear to be exempted, as would a catalog order placed by telephone.

Certain emergency and repair transactions are also exempted (§ 429.1, note 1(a)(3)). To qualify for the emergency exclusion, (1) the buyer must have initiated the contact, (2) the goods or services must be needed to meet a bona fide immediate personal emergency of the buyer, and (3) the buyer must furnish the seller with a separate dated and signed personal statement in his own handwriting describing the situation and expressly acknowledging and waiving his right to cancel. Repair services rendered on the customer's personal property at the customer's initiation and request are entirely exempted from the rule, but the sale of additional goods or services other than necessary replacement parts would be subject to the cancellation right (§ 429.1, note 1(a)(5)).

The rule also exempts transactions covered by the Federal Truth in Lending Act's right of rescission (§ 429.1, note 1(a)(2)),(fn7) as well as transactions involving the sale or rental of real property, the sale of insurance, and the sale of securities or commodities by a broker-dealer registered with the Securities and Exchange Commission (§ 429.1, note 1(a)(b)).

One other exemption arises from the Commission's statutorily restricted jurisdiction over only those acts or practices that are "in commerce."(fn8) The Supreme Court has ruled that the FTC's power extends only to conduct that is actually in interstate commerce and not to conduct that merely has an effect upon such commerce.(fn9) Thus, a Colorado seller whose activities are purely intrastate is exempt

33from the door-to-door sales rule.This exemption is not as helpful as it might seem, however, because it is not very clear when activities are in commerce and when they are intrastate. A seller probably need not worry about the FTC rule if he manufactures and sells his goods in Colorado only and does nothing else.(fn10) However, if he sells in more than one state,(fn11) ships goods across state lines,(fn12) or advertises in media disseminated across state lines,(fn13) he may be subject to the FTC's jurisdiction. This issue may become moot if S. 356, which has passed the Senate and House in different forms, is enacted because the bill would expand the Commission's jurisdiction to acts or practices "in or affecting commerce."(fn14) In the meantime, the seller in doubt should comply with the FTC rule, as well as the UCCC provisions if applicable.

Required NoticesAs indicated above, the rule imposes a notice obligation on the door-to-door seller. First, the seller must furnish the buyer with a fully completed receipt or copy of a contract relating to the sale.(fn15) The contract must contain a summary notice of the buyer's right to cancel which is placed in "immediate proximity" to the space provided for the buyer's signature on the contract or on the front page of the receipt in at least ten-point bold face type (§ 429.1(a)). The summary notice must read "substantially" as follows:

You, the buyer, may cancel this transaction at any time prior to midnight on the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right.

The attached completed notice, which must be furnished in duplicate and be easily detachable from the contract or receipt, also must be in at least ten-point bold face type and, apparently, must be in precisely the following form (§ 429.1(b)):

NOTICE OF CANCELLATION

(enter date of transaction)

---

(date)

YOU MAY CANCEL THIS TRANSACTION, WITHOUT ANY PENALTY OR OBLIGATION, WITHIN THREE BUSINESS DAYS FROM THE ABOVE DATE.

IF YOU CANCEL, ANY PROPERTY TRADED IN, ANY PAYMENTS MADE BY YOU UNDER THE CONTRACT OR SALE, AND ANY NEGOTIABLE INSTRUMENT EXECUTED BY YOU WILL BE RETURNED WITHIN 10 BUSINESS DAYS FOLLOWING RECEIPT BY THE SELLER OF YOUR CANCELLATION NOTICE, AND ANY SECURITY INTEREST ARISING OUT OF THE TRANSACTION WILL BE CANCELED.

IF YOU CANCEL, YOU MUST MAKE AVAILABLE TO THE SELLER AT YOUR...